Tiberius Used Quantitative Easing To Solve The Financial Crisis Of 33 AD

Although many people have hailed Ben Bernanke’s response to the
current financial crisis for going outside of the box and using
unorthodox policies to avoid a financial collapse, in reality,
similar policies were used by Tiberius during the
Financial Crisis of 33 AD, almost 2000 years ago.

Tiberius ruled the Roman
Empire from 14 AD to 37 AD. He was frugal in his
expenditures, and consequently, he never raised taxes during his
reign. When Cappadocia became a province, Tiberius was
even able to lower Roman taxes. His frugality also allowed him to
be liberal in helping the provinces when, for example, a massive
earthquake destroyed many of the famous cities of Asia, or when a
financial panic struck the Roman Empire in 33 AD.

As with many financial panics, this one began when unexpected
events in one part of the Roman world spread to the rest of the
Empire. To quote Otto Lightner from his History of Business
Depressions, “The important firm of Seuthes and Son, of
Alexandria, was facing difficulties because of the loss of three
richly laden ships in a Red Sea storm, followed by a fall in the
value of ostrich feather and ivory. About the same time the great
house of Malchus and Co. of Tyre with branches at Antioch and
Ephesus, suddenly became bankrupt as a result of a strike among
their Phoenician workmen and the embezzlements of a freedman
manager. These failures affected the Roman banking house, Quintus
Maximus and Lucious Vibo. A run commenced on their bank and
spread to other banking houses that were said to be involved,
particularly Brothers Pittius.

“The Via Sacra was the Wall Street of Rome and this thoroughfare
was teeming with excited merchants. These two firms looked to
other bankers for aid, as is done today. Unfortunately, rebellion
had occurred among the semi civilized people of North Gaul, where
a great deal of Roman capital had been invested, and a moratorium
had been declared by the governments on account of the
distributed conditions. Other bankers, fearing the suspended
conditions, refused to aid the first two houses and this
augmented the crisis.”

At the same time, agriculture had been on the decline for several
years, and Tiberius required that one-third of every
senator’s fortune be invested in Italian land. The senators
had 18 months to make this adjustment, but by the time the period
was up, many senators had failed to make the proper
adjustment. This deadline occurred at the same time as the
events above occurred, placing a further squeeze on the financial
sector.

When Publius Spencer, a wealthy noblemen, requested 30 million
sesterces from his banker Balbus Ollius, the firm was unable to
fulfill his request and closed its doors. Over the next few
days, prominent banks in Corinth, Carthage, Lyons and Byzantium
announced they had to “rearrange their accounts,” i.e. they had
failed. This led to a bank panic and the closure of several banks
along the Via Sacra in Rome. The confluence of these
seemingly unrelated events led to a financial panic.

To protect themselves, banks began calling in some of their
loans. When debtors could not meet the demands of their
creditors, they were forced to sell their homes and possessions,
and with money unavailable even at the legal limit of 12%, prices
of real estate and other goods collapsed since there were so few
buyers. A full scale panic followed. The panic occurred not
only in Rome, but throughout the Empire. If anyone thinks
that it is only in recent times that financial markets have been
so fully integrated that the failure of the Creditanstalt in 1931
or Lehman in 2008 could precipitate a panic, they clearly have
not read their history. By their nature, financial markets
have always been integrated, and failure in one part can create
the domino effect which created the Great Depression and was
witnessed in 2008.

Tiberius had retired from
Rome. Although a great general, some
felt Tiberius never wanted to be emperor, and he became
reclusive in his later years. It took time to contact him and get
a response. Several days later, he sent a letter to Rome with
measures to alleviate the crisis. The decrees which had
precipitated the problem were suspended. 100 million
sesterces were to be taken from the imperial treasury and
distributed among reliable bankers, to be loaned to the neediest
debtors. (A loaf of bread sold for half a sestertius and
soldiers earned around 1000 sesterces, so if you take an average
soldier’s salary of around $20,000, you could say that one
sestertius was equal to about $20 today.) The 100 million
sesterces was equivalent to around $2 billion.

No interest was to be collected for three years; but security was
to be offered at double value in real property. This
enabled many people to avoid selling their estates at low prices,
stopping the fall in prices and ensuring that the lack of
liquidity never occurred. Though a few banks never recovered
from the panic, most continued business as usual, and the
financial panic ended as quickly as it began.

If you think
about Tiberius’s response, it is little different from what
Bagehot would have recommended in Lombard Street, written in1873,
or what Bernanke did in 2008. Just as Bernanke expanded the
balance sheet of the Fed, Tiberius increased liquidity
by a huge amount, an early version of the
TARP. Tiberius lowered interest rates to zero for
three years to alleviate any additional pain, again, little
different from the quantitative easing the Fed has carried out to
keep both short- and long-term interest rates low.

The financial crisis of 33 AD also illustrates how integrated all
parts of the Roman Empire were since it involved not only Rome,
but Egypt, Greece and France. The financial panic took
place over a period of a few weeks, one collapse precipitating
the other, just as problems at Lehman, AIG and Morgan Stanley
quickly led to problems in other parts of the financial sector
and the real economy. The financial crisis was resolved with
Tiberius’s measures, and the downward spiral was stopped.

When Tiberius died in 37 AD, he had a fortune of 2.7
billion sesterces, or over $50 billion. Unfortunately, his
successor was his son Caligula, who was, to say the least, not as
refined in his judgments as Tiberius was.